sherman antitrust act definition us history

sherman antitrust act definition us history

The Sherman Antitrust Act: A Comprehensive Study in U.S. History

1. Introduction to the Sherman Antitrust Act

Moreover, Congress ignored the lobby by embodying that lack of power must be construed as illegal, a clause which many courts interpreted as sweeping the Trusts into oblivion. In the enchanting legislative processes by which one or the other chamber whittled away the compelling mandates and prescriptions, the Nation took a giant step toward the consequent rap-on-the-knuckles policy. In the remaining eighty years, antitrust became the gun that never fired, the sword that rusted in its scabbard, and the sizzling black powder that was impossible to ignite.

The nation might have followed less costly, expeditious, and effective measures such as denying legal status to corporations which unduly restricted trade and attempting, at least, to narrow the range of cartel and trust operations. Although Congress did not call a halt to anti-competitive business practices at the earliest possible moment, it did, by the plain language of the Act, pronounce combinations in restraint of trade to be illegal per se. Cartels would have to receive immunity from prosecution.

In June 1890, the United States Congress passed a statute entitled “An Act to Protect Trade and Commerce Against Unlawful Restraints and Monopolies.” This measure would hence cover small businesses, and laissez-faire and individualism would become entrenched American principles. Indeed, the United States Supreme Court and Congress, during the long years of the laissez-faire era, laid encircling work by marking out and eliminating alternative channels of lateral industrial combination and central coordination.

2. Historical Context and Need for Antitrust Legislation

Before the end of the nineteenth century, four different types of monopolistic controls could be identified in an expanding American economy. Many manufacturers were perfectly willing to try, successfully for the most part, to exclude all others from the right to operate businesses in their particular fields. Consequently, manufacturers of consumer products often sought and secured federal or state patents, or copyrights and trademarks to protect their products from copies by competitors. Later, some manufacturers began to purchase exclusive rights to use some of the basic inventions of the new factories. Once doubt concerning the legality of these practices was removed, many factory giants, such as the trusts and pools, succeeded in bringing on the organization mania by which individual entrepreneurs in the same line of business sought protection from losses by combining to create larger, more efficient corporate machines. These corporate giants were soon able to profit from the fruits of larger business units – the economies of scale and technical expertise of the new mass production industries. Concern began to grow over the likelihood that benefits from economies of scale were failing to reach the consumer-public because the owners of numerous trusts had failed to achieve economies of scale. To worsen the antitrust picture, numerous corporations in noncompetitive industries were guilty of criminal conspiracies. Finally, to eliminate unearned profits, some corporations charged differential prices and rates for their products and services.

American industry was in turmoil following the Civil War. Vast technological advances created ever-widening markets for the products of the new factories. These inventions greatly increased production and enhanced the profits of the factory owners. However, labor was beset by severe financial and social handicaps. Factory laborers worked under inhumane and appalling working conditions, for long hours and low wages for adults, and almost starvation wages for children. Moreover, many families had difficulty keeping body and soul together in the face of economic adversity. Suddenly, some of the muckrakers of the Progressive era called attention to increasing poverty in the face of outrageous wealth.

3. Key Provisions and Objectives of the Sherman Antitrust Act

Section 1 outlaws either the following actions, or collaborative actions by businesses that have the effect of restraining trade: fixing prices of goods that are used for commercial transactions, fee or price schedules of professionals who are engaged in providing services, and the prices of goods that contractors sell to the government. Creating or threatening to create either a trust or a monopoly by businesses. A trust is defined in the Act as the principal property’s transfer to one or more persons who collectively manage the property or the profits earned from the property’s usage for some other persons’ benefit. Meanwhile, a monopoly is defined as the situation when an enterprise has control of a particular commodity, service, production facility, or its marketplace. Control over 50 percent of the business constitutes prima facie evidence of this control. The acquisition of goods that control prices or which restrain free trade.

The Sherman Antitrust Act is a federal law that was enacted by the U.S. Congress with the objective of preventing the restraint of free commercial competition. It was enacted in 1890 under the leadership of U.S. Senator John Sherman of Ohio. The Act is considered as the United States’ first antitrust law and it is therefore seen as manifesting the country’s commitment to preserving commercial competition, which in turn is considered to be an essential driver of economic growth. It is comprised of three sections, with every section having a specific purpose:

4. Impact and Significance of the Sherman Antitrust Act

The results of trust organization on a number of fronts appeared quite adverse. The economic power wielded by trusts may be abused at the expense of both individual producers and consumers in order to raise prices lavishly. Excessive market power would therefore be used to thwart competition, dictate terms to suppliers, exploit customers, manipulate labor and wage rates, and use commerce to “oppress and degrade.” Some difficult questions arose regarding the extent and diversity of the damage alleged, the manner in which this was to be quantified and satisfactorily established, and the appropriate solution. Many of the arguments advanced remain equally applicable today, even when they are articulated in the language of professional antitrust economics of the 20th-century antitrust public policy. In its insistence that big business was good business, they took the issue of what constituted big business. As the trust movement grew, a formidable economic entity engulfed further areas of American business enterprise. Even the suggestions for reducing the economic power of the trust movement that had been presented were also likely to promote the continuation of increased size and extent, although it was presumed that this would take place in a more diffuse and diffused independent atmosphere rather than in circumscribed trust organizations.

Following its development in the early 20th century, the Sherman Antitrust Act became the most comprehensive legislative document in U.S. history. The Act resulted from a deep and ingrained public conviction that trust organizations had acquired an economic stranglehold on the country and that they had brought the competitive system, and most of the opportunities it offered, to a virtual standstill. The Sherman Antitrust Act was described for many years as a “charter of economic freedom” for Americans. The sponsors and supporters of the Act believed that the best way to usher in a period of prosperity was to break up the existing large industrial combinations and thus reinvigorate free competition. The case that has been made by free competition advocates challenged the rapidly growing trust organizations was unequivocal. The dynamism of the competitive system had largely been responsible for transforming a predominantly agricultural nation into one of the world’s leading industrial and commercial centers. It generated efficiency, economic growth, production profits, increased material abundance, and better living standards. Further, the historical record of successful antitrust enforcement or voluntary dissolution had demonstrated the great possibilities of successfully achieving the goals consonant with US economic history in the nation’s economic history.

5. Challenges and Criticisms Faced by the Sherman Antitrust Act

Social and economic criticisms have been directed towards all ten of the graded levels of antitrust behavior that have been altered by Supreme Court opinions to rationalize the Sherman Act in accordance with changing economic conditions in the United States. Other criticisms were voiced when the Supreme Court adopted the rule of reason to judge alleged antitrust violations on a “case-by-case basis” and set up the Clayton Act to minimize harms resulting from anticompetitive behavior. The Court’s interpretations in Sylvania and the liberal views of the Warren Court in Solomon and Albrecht reflect an inclination to favor the needs of the small entrepreneur and the consumer. But the existing antitrust laws have been challenged for their inability to protect the police and the consumers’ needs, for their failure to provide remedies to meet corporate practices in the courtroom, and for their consequences that many feel perpetuate the power, sovereignty, and consolidation of the nation’s marketplace. Shifting judicial interpretations of key phrases and words in the existing anti-business laws and regulations have given rise to new interpretations that eliminate important controls and guidelines. Like the Fair Trade Commission and the “mobility” test, the large corporate interests of the post-World War II era have not received the same type of examination and evaluation present today.

In its more than one hundred-year history, the Sherman Antitrust Act has played a very significant role in altering the ways industries operate and the ways industry is organized in the United States. In the process, it has faced increased social and economic criticisms of its alleged failure to promote and protect small entrepreneurs, to lessen the growth of monopolistic behavior, to provide legal assistance to labor, and to fend off growing economic concentrations and mergers within the United States. The doubts expressed have provided the impetus in other industrial nations to also assess and examine their antitrust and trade relations laws.